Tax Reciprocity with Delaware

June 10, 1993

Don't worry about tax fairness, just be happy you have jobs That was state Comptroller Louis L. Goldstein's message to Marylanders who work in Delaware and pay income taxes there.

Delaware, which would lose a net $20 million in income tax from Marylanders, has no interest in a tax reciprocity agreement that would allow workers to pay taxes only in the state where they live. As Maryland lacks any legal clout, Delaware has no incentive to even discuss it.

Cecil County has pressed unsuccessfully for a county tax authority to remedy the issue, on behalf of 11,000 county residents (out of nearly 18,000 Marylanders) working in Delaware.

Marylanders commuting to Delaware often pay more income taxes, not only in higher rates to Delaware but also the county piggyback tax in Maryland. They must file two state income tax returns. (Cecil and other Maryland counties don't lose a penny of the piggyback tax, receiving full credit from Annapolis for each resident who files.)

The General Assembly told Mr. Goldstein to study the issue. But the House of Delegates Ways and Means Committee, packed with Washington-area legislators who fear that the District of Columbia will someday slap a commuter tax on their constituents, killed the Cecil proposal for a tax equity plan.

Maryland would lose hundreds of millions of dollars if Congress should permit D.C. to levy a commuter income tax, which the Washington city government dearly wants, Mr. Goldstein said.

Maryland has tax reciprocity accords with Washington and all other bordering states; commuters across state lines other than Delaware's have to file two tax returns.

Delaware, which has no sales tax but higher income tax rates than Maryland, refuses to budge. It is a "net importer" of commuting workers, not only from Maryland but from New Jersey and Pennsylvania, as well.

Marylanders employed in Delaware thus have no recourse but to grin and bear it. Maryland collects state income tax from 9,700 Delaware residents working here. Cecil can't impose a commuter income tax, under state law. The inequity will persist, as long as Washington's threat continues to serve Delaware's interests.